Technology will continue to attract investment in automotive retail

Technology will be the driver of investment in the automotive retail sector over the next decade, according to Mike Allen, head of research at Zeus Capital, an independent investment banking consultancy, who will speak at AM’s forthcoming Automotive Retail Conference.

Allen, who is also a board advisor at Carwow and Auto Service Finance, will be exploring the investment opportunities and how dealer groups can continue to make themselves attractive to shareholders when he takes to the stage on 21 May at the Ricoh Arena.

Not surprisingly, Zeus Capital expects the sector to host more start-ups, said Allen: “While the industry is cyclical, structural change is coming and investment in new technology, infrastructure and new business models to engage with consumers, suppliers and other parties will be required.

“We anticipate more startups in the automotive space. Perhaps ‘AutoTech’ could become a prominent theme? Key areas of structural change are likely to be based around shared ownership, electrification and connectivity. Various elements of autonomous driving will come but further away in the future in our view.”

Investors will still be attracted to companies which continue to disrupt the traditional car buying model. Carwow, for example, now accounts for around 5% of new car sales in the UK and is expanding across major European markets.

However, a key message from Allen is that whilst change is afoot, the days of the dealer are far from numbered but a reduced franchised network is inevitable and groups will focus investment in even more digital assets and resources.

He added: “There’s no doubt that the total number of dealership sites will fall over the coming years, with scope for capacity cuts on this basis around 20%. However, as we have seen with the recent Vauxhall network re-organisation, this will favour larger and well invested sites, which has been a key focus of the significant capital invested by the PLC groups over the last five years. These larger sites are likely to cover wider populated areas at the expense of the smaller local sites in our view.

“Retailers have already invested significant sums in real estate to create the large brand centres required by OEMs. We would not be surprised to see retailers look more at their digital assets and capabilities and possibly invest more here to create a more enriched omnichannel or ‘bricks with clicks’ experience for consumers. To make shareholders happy they will need to be differentiated, have scale in a controlled and profitable way showing strong capital discipline.”

Allen’s session will provide insights into investment areas in the sector representing a crucial element of Automotive Retail Congress which explores the trends, threats and opportunities expected to emerge in the coming decade. Designed to help the sector’s senior executives and key decision-makers plan for a dramatically changing automotive retail environment, places at the event can be booked at https://www.amretailcongress.co.uk/